The Washington Post calls me “an influential health-care wonk at the libertarian Cato Institute,” where I am the director of health policy studies. The New Republic says I'm "Obamacare's Single Most Relentless Antagonist." Voxsays I'm "the man who could bring down ObamaCare." The Hill says I'm one of “the 100 People to Watch.” I am the co-editor of Replacing Obamacare: The Cato Institute on Health Care Reform (Cato, 2013) and coauthor of Healthy Competition: What’s Holding Back Health Care and How to Free It (Cato, 2013). Though not a Republican, I served as a domestic policy analyst for the U.S. Senate Republican Policy Committee, advising the Senate leadership on health, education, labor, welfare, and the Second Amendment. I have appeared on ABC, CBS, CNN, CNBC, C-SPAN, Fox News Channel, and NPR. My work has been featured in The Wall Street Journal, The New York Times, USA Today, the Los Angeles Times, the New York Post, the Chicago Tribune, the Chicago Sun-Times, the San Francisco Chronicle, Huffington Post, Forum for Health Economics & Policy, Health Matrix: Journal of Law-Medicine, and the Yale Journal of Health Policy, Law, and Ethics. I've got a bachelor’s degree in American government (B.A.) from the University of Virginia, and master’s degrees in economics (M.A.) and law & economics (J.M.) from George Mason University. Click “Follow” next to my photo (above) to receive notices of some of the most important analysis of ObamaCare and beyond.

ObamaCare Through The Looking Glass: Judge Paul Friedman's Opinion In Halbig v. Sebelius, Part I

A federal court in Washington, D.C., has issued the first ruling in one of several important lawsuits related to the Patient Protection and Affordable Care Act, or ObamaCare. Halbig v. Sebelius and its companion cases concern whether the IRS may issue subsidies and impose certain penalties in the 34 states that have opted not to establish a health insurance “exchange,” and have thereby defaulted to a federal Exchange.

The PPACA offers “premium-assistance tax credits” to certain qualified individuals. Those credits trigger additional “cost-sharing” subsidies, as well as penalties against certain employers and individuals under the law’s employer and individual mandates. The PPACA’s tax-credit eligibility rules explain that recipients must be enrolled in a qualified health plan offered “through an Exchange established by the State under section 1311.” It contains no language authorizing tax credits through federal Exchanges, which are established under Section 1321. If tax credits are not authorized in those 34 states, then millions of employers and individuals will be exempt from penalties for not purchasing health insurance. In May 2012, the IRS announced it would nevertheless issue those subsidies and impose those penalties in states that default to a federal Exchange.

The plaintiffs in the Halbig cases hail from states that have opted not to establish an Exchange. They include private citizens of modest means, dozens of public schools and school districts, private employers, and two state attorneys general. They claim that the IRS, by issuing tax credits in their states, is subjecting them to penalties from which Congress expressly exempted them. (The two state plaintiffs, Oklahoma and Indiana, further claim the IRS’s actions infringe on their sovereignty.) They are asking federal courts to vacate the IRS rule extending tax credits to federal Exchanges, and to direct the IRS to issue tax credits in a manner consistent with the law.

Ron Pollack, the executive director of Families USA and a prominent ObamaCare supporter, says the Halbig cases are “probably the most significant existential threat to the Affordable Care Act.” That’s not quite accurate. These lawsuits seek to uphold the statute by preventing the IRS from rewriting it. If the PPACA faces a threat, it stems from the fact that Congress gave states the power to veto major provisions of the law, and two-thirds of the states have exercised their vetoes.

On January 15, federal district court Judge Paul Friedman issued the first ruling in one of the Halbig cases. Judge Friedman dismissed the employer plaintiffs from Halbig v. Sebelius, ruling the federal Anti-Injunction Act prevents them from challenging the IRS rule until they are assessed a penalty. While he found the individual plaintiffs had standing to challenge the IRS rule, Judge Friedman nevertheless upheld the rule.

The U.S. Court of Appeals for the D.C. Circuit has granted an expedited appeal of Judge Friedman’s ruling, scheduling oral arguments for March 25. That court will have to grapple with a number of problems in Judge Friedman’s reasoning. I’ll address the biggest one here, and further problems in subsequent posts.

A Rule that Would Obliterate the Law

The first problem has to do with the fact that Judge Friedman ruled in favor of the IRS, as the law professors say, at “Chevron Step One.” In English, that means he found “the unambiguous meaning of the statute” is that Congress intended to authorize tax credits in federal Exchanges. That’s problematic because the statute says the exact opposite.

(Photo credit: Wikipedia)

The tax-credit eligibility rules clearly say that taxpayers are eligible for credits if enrolled in a qualified health plan through an Exchange “established by the State under Section 1311.” They employ this restriction repeatedly and consistently. Given such explicit language, it is hard to argue Congress intended to authorize tax credits in federal Exchanges. It is harder still to argue Congress intended one thing, expressed the opposite desire in the statute, and yet somehow expressed itself without ambiguity.

That’s not to say it is impossible. But consider what that would take for Congress to achieve such a feat. Everyone from the Halbig plaintiffs to neutral observers like the Congressional Research Service to defenders of the IRS like law professor Timothy Jost have recognized that the words “established by the State under section 1311” mean that tax credits are available only through state-established Exchanges. In the face of that clear directive, establishing ambiguity about Congress’ intent would require Judge Friedman to identify some provision of the statute or piece of legislative history that shows with equal clarity that Congress intended the PPACA to authorize tax credits in federal Exchanges. (More about this in my next post.)

If, however, Judge Friedman wants to establish that Congress – without ambiguity – directed the IRS to do the opposite of what the statute says, the lift is heavier. He would need to identify statutory language explicitly directing the agency to ignore what everyone knows the words “established by the State under section 1311” mean.

As it turns out, the PPACA’s authors did that sort of thing routinely. So it would have been easy for them to do here, had that been their intent. Section 1323 provides that U.S. territories establishing a compliant Exchange “shall be treated as a State.” So, Congress could have said that Exchanges established by the federal government shall be treated as though they had been established by a state. Section 1304(d) creates a legal fiction when it explicitly defines “State” to include the District of Columbia. (Since D.C. established its own Exchange, this legal fiction makes D.C. residents eligible for tax credits.) In the same manner, Congress could have defined Exchanges “established by the State under section 1311” to include federal Exchanges. Finally, the PPACA contains 95 separate “notwithstanding” clauses. Had its authors added just one more – say, “Notwithstanding any other provision of law, premium-assistance tax credits shall be available through Exchanges established by the Secretary” – Congress would have unambiguously overridden the plain meaning of the tax-credit eligibility rules, and we wouldn’t be having this conversation.

And yet, Congress did none of these things.

Illustration by John Tenniel of the Red Queen lecturing Alice for Lewis Carroll’s “Through The Looking Glass” (Photo credit: Wikipedia)

So here we come to the first problem with Judge Friedman’s ruling. He writes, “the ACA takes a state-established Exchange as a given and directs the Secretary of HHS to establish such Exchange and bring it into operation if the state does not do so.” When a state elects not to establish an Exchange, Judge Friedman says, the ACA directs the IRS to pretend that something clearly false – “Texas has established an Exchange” – is true. Yet he identifies absolutely no statutory provision wherein Congress gives the IRS the permission to act as though obviously untrue things are true. He himself simply bestows upon the IRS the power to believe, like the Red Queen, in impossible things; and to decide, like Humpty Dumpty, that a word “means just what I choose it to mean – neither more nor less.”

Consider what it would mean if courts allowed the executive branch, without a clear directive from Congress, to interpret statutes to mean the opposite of what they plainly say. Such a rule would not merely expand executive power. It would obliterate the law.

Given that Judge Friedman does not identify any statutory language directing the IRS to do the opposite of what the tax-credit eligibility rules say, how does he know that’s what Congress wanted the IRS to do? The answer is inference. It’s the second problem with Judge Friedman’s opinion, and the subject of my next post.

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I believe it was the White Queen not the Red Queen who spoke to Alice of believing impossible things. The Red Queen is famous for “Sentence First, Verdict Later” “If lawyers and judges have reached the level of the White Queen about believing impossible things, in this case a tax that is and is not is a tax at the same time;

“Alice laughed. ‘There’s no use trying,’ she said ‘one can’t believe impossible things.’ ‘I daresay you haven’t had much practice,’ said the Queen. ‘When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.” then it is time to invoke the Shakespeare solution “The first thing we do, let’s kill all the lawyers.” Henry The Sixth, Part 2 Act 4, scene 2, 71–78

If lawyers and judges have reached the level of the White Queen about believing impossible things, in this case a tax that is and is not is a tax at the same time;

“Alice laughed. ‘There’s no use trying,’ she said ‘one can’t believe impossible things.’ ‘I daresay you haven’t had much practice,’ said the Queen. ‘When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.” then it is time to invoke the Shakespeare solution “The first thing we do, let’s kill all the lawyers.” Henry The Sixth, Part 2 Act 4, scene 2, 71–78